This document discusses economic decision making in multinational companies through a case study. It defines multinational companies as those with operations in more than one country. When companies expand internationally, they consider factors like demand saturation at home, growth prospects abroad, and lower costs overseas. Key economic decisions for multinationals include capital budgeting, location selection based on costs and market access, tax implications between countries, and transportation costs. The document also provides an example of Microsoft's expansion into India over 30 years, from an initial small office to major operations across multiple locations.
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Economic Decision in Multinational Companies
1. CASE STUDY
ECONOMIC DECISION IN MULTINATIONAL COMPANIES
Presented by:-
Name : Dhanashri Shirsath
Subject : Information System and Engineering Economics
3. Multinational Companies
• Those companies which decide to shift their manufacturing base to other
countries or establish additional manufacturing capacities in other countries
and have presence in more than one country are known as multinational
companies.
4. • The factor behind a company going to other countries is that it has reached a
plateau satisfying local demand which is not subsiding.
• The other factors are company finds better growth prospects in other
countries, the wage and productivity levels abroad are attractive, by
basing its manufacturing activity in that country the company is able to
circumvent the countries import policy, the foreign regulatory and legal
environment and transportation cost.
When from national to multinational?
6. Multi National Corporation(MNC)
• A company or group should be considered a multinational corporation if it
derives 25% or more of its revenue from out-of-home-country operations.
• According to Franklin Root(1994), an MNC is a parent company that,
1. Imports and Exports goods and services
2. Make significant investments in a foreign country
3. Buy and sell licenses in foreign markets
4. Engage in contract manufacturing — permitting a local manufacturer in a
foreign country to produce its products
5. Opens manufacturing facilities or assembly operations in foreign countries
7. Economic Decisions in Multinational
Companies:-
1. Capital Budgeting
2. Location
3. Tax Implication
4. Transportation Cost
8. • Capital budgeting is the process of identifying, evaluating, and
implementing a firm’s investment opportunities.
1. CAPITAL BUDGETING
9. • Where to locate activities and investments?
• The location-specific parameters enable an MNC to become more profitable with
either lower costs involved or better access to specific knowledge, which becomes
a strategic asset on the way to outperforming competitors.
2.Location
10.
11. • Multinational firms focus on statutory tax rate which in case mislead and would
be more meaningful to follow the average effective tax rate
• The average effective tax rate is perhaps the biggest influence of firm’s decision
from tax perspective's firms base their decisions on the average effective tax rate
of the country where they want to invest
3.Tax Implication
Types of company Corporate tax rate
Domestic with annual turnover up to Rs
250 Crore
25%
Domestic Company with turnover more
than Rs.250 Crore
30%
Foreign Companies 40%
Fig . Corporate Tax Rate in India
12. • Transportation costs are like tariffs that raise consumer prices.
• Where the market is large and the transportation costs are high the company wants
to build their production plant close to the market or in some cases close to the
source of raw material.
4.Transportation Cost
13. MICROSOFT COMPLETED 30 YEARS IN
INDIA
• The company first established a small office at
Hyderabad, India in 1990
• When Microsoft came to India, it had the following three
objectives:
1.To become an integral partner with Indian government
and the local corporate houses
2.To support the local IT scenario with customized
solutions
3.To provide support to different aspects of society such
as promoting IT education, youth innovation, women
empowerment etc.
14. • Microsoft started focusing on YouthSpark programs to promote
budding entrepreneurs, women empowerment by giving them
free training and accessories necessary to start their own
industries, employee contribution where Microsoft employees
contribute for different social causes – small and big. There are
many such programs by Microsoft running in India, including
sanitation.
• The company that based its Indian Headquarters at Hyderabad in
1990 now has two subsidiary offices in Gurgaon and Bangalore.
The company has come a long way from its start in India in 1990
